Infrastructure: theirs and ours

Indian Express, 22 December 2006

Infrastructure is hard to do, but rural infrastructure is even harder. Populations are scattered; low incomes prevent households from investing in electrical appliances, vehicles and telephones thus keeping demand low.

In India, the approach of having private vendors enforcing user charges, in a regulated environment, has worked very well for some kinds of infrastructure problems. But this approach might not work too well for rural infrastructure, where the demand for infrastructure is low and projects are often not financially viable. The alternative strategy is to have infrastructure built by the government. This approach requires a vigilant citizenry, a watchful press, and good governance, or else public expenditures end up in the pockets of contractors and their political friends. In rural areas, governance is weak, and public works have the least chance of success.

Thus, rural infrastructure is a genuine puzzle; neither the private vendor plus user charges approach, nor the public sector construction approaches are easily applicable. India Rural Infrastructure Report, written by the National Council of Applied Economic Research and published by Sage, is one of the first comprehensive reports to highlight the specific problems that India faces on rural infrastructure, emphasise that more of the old approach would not work, and suggest a new policy framework for improving rural infrastructure.

The current picture in Indian villages is bleak, and much worse than urban India. Nine-tenth of rural households do not have telephones. Half do not have domestic power connections, and even those with connections are without power because of outages for upto 13 hours a day on average and about 17 hours a day during monsoons. Half the people do not have access to all-weather roads. Almost eighty percent households do not have toilets. Even those who have access to drinking water, have no assurance about its quality.

While rural infrastructure is genuinely difficult to do in the best of times, the problems have been exacerbated by poor policies. As an example, in the case of rural telephony, government has focused on provision of fixed-line telephones through BSNL. There are two distortionary financial levies: payments into the Universal Service Obligation (USO) fund, and the Access Deficit Charge, through which the private sector subsidises BSNL. It is possible to get much more bang for the buck by improving policies. The cost of rolling out mobile telephony is lower, and this is a better strategy for reaching inaccessible areas. More importantly, instead of public money flowing through BSNL, contracts can be given out through open competitive bidding where private telecom companies can compete with BSNL and help drive down the price of rural telephony.

There is an increasing sense that the best role for the government in aiding rural telephony is to support lowering of prices by the removal of USO and ADC payments, and to have an on-budget program for building towers where space is rented out to telecom vendors for the purpose of establishing base stations. Such an approach would do far more for rural telephony than the existing policy framework.

Rural roads are an even more difficult issue. While 13 states have village connectivity of 85 percent or more, an equally high number, 14 states have less than 60 percent connectivity. In Karnataka less than 0.5 percent of the villages were unconnected in 1997, while in Madhya Pradesh (including Chattisgarh) 72 percent of villages were unconnected. In 2005 there were 270,000 villages yet to be connected by all-weather roads. As an NCAER survey shows, rural households are increasingly using motorised transport such as mopeds, scooters and motorcycles to commute over short distances. The demands for motorised transport is increasing faster than the demand for bicycles. The growth of the rural market owing to the rise of a middle class and the growth of motorised transport has outpaced the growth of rural roads.

Studies in the health sector show that placing a Primary Health Centre in a village does nothing for improving health outcomes, after controlling for other village characteristics. However, road connectivity has a powerful effect on income and hence on rural health.

While the report points out the various issues that policy makers should focus on, the recommendations of the report should be discussed and debated before each state and district finds its own suitable solution. While user charges and private capital can be effective sources of revenue and investment in urban roads, they may not be as effective in rural areas. Decentralisation of road construction and maintenance without adequate monintoring may result in corruption and poor quality roads. While user charges may be a useful way to address the issue of water availability and wastage, a regulatory framework for water quality may be equally important. The issues are difficult but can no longer be ignored.

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